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56 Cards in this Set

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List the most common items listed under the ASSETS section of a banks balance sheet.
Reserves
Securities
Loans
List the most common items listed under the LIABILITIES section of a banks balance sheet.
Deposits
Borrowing
Capital
Required Reserves =
Required reserve ratio * Deposit Total
The dual banking system consists of:
State Banks
National Banks
McFadden Act
1927
Restricted national banks to follow state laws on branching

Was repealed in the late 1990's, which resulted in much more consolidation of banks.
Glass Steagal Act
1933
Established FDIC
Established firewall between banking and other financial services. This has since been repealed, which made for more of a Universal banking system in the U.S.
Creation of the FDIC created an increased
Moral Hazard and Adverse Selection Problem.
Moral hazard cause by FDIC
Banks are more likely to give out more loans than they normally would since they know they are insured.
Adverse Selection as a result of the FDIC
High risk individuals are more likely to come to banks since they know the deposits are insured
The payoff method of closing down a bank
Used for smaller banks
FDIC pays off deposits up to $100,000.
Large depositors may lose money in this situation.
Purchase and Assumption method of closing a bank:
-FDIC reorganizes the bank by finding a willing merger partner who assumes all of the failed bank's deposits
-FDIC helps the merger partner by providing loans, etc
-No depositors lose money
FOMC
-Federal Open Market Committee
-Composed of 12 members, 7 from board of governors and 6 from federal reserve bank presidents.
Board of governors
Vote of conduct and Open Market Operations
Controls discount rate
Federal Reserve Bank Presidents
Only 5 can vote on FOMC
FOMC
-Federal Open Market Committee
-Composed of 12 members, 7 from board of governors and 6 from federal reserve bank presidents.
Board of governors
Vote of conduct and Open Market Operations
Controls discount rate
Federal Reserve Bank Presidents
Only 5 can vote on FOMC
Discount loans are an asset or a liability on a bank's balance sheet?
Liabilities
List common Assets on a banks balance sheet
Reserves
Securities
Loans
Deposits at other banks
Building
List common Liabilites on a bank's balance sheet
Checkable deposits
Nontransaction deposits
Borrowings
Bank's Capital
Money Multiplier =
C+1/c+r+e
An increase in the non borrowed monetary base will cause money supplied to:
Rise
An increase in the required reserve ration has what affect on the money multiplier and the Money Supplied?
It will cause both to decrease
The great depression caused the currency ratio and the excess reserve ratio to
increase
Open market purchase causes
Reserves demanded to rise and the reserves supplied to decrease and the federal funds rate to fall.
Open Market operations - advantages
-Quick
-Any Size
-Quickly reversible
-Fed has complete control

- No disadvantages!
Discount policy as a tool for fed advantages
-the fed can use it to perform its role of lender of last resort
-Due to this function the fed can prevent financial panics.
Discount policy as a tool for the fed DISADVANTAGES
-Confusion about the fed's intentions
-Discount rate changes may cause unintended fluctuations in money supply
-Less effective than OMO
Reserve requirements as a tool for the fed ADVANTAGES
-They affect all banks equally and have a powerful effect on the money supply
Reserve requirements as a tool for the fed DISADVANTAGES
-Raising the requirements can cause liquidity problem for bank with low excess reserves
-Frequent changes cause uncertainty for banks
-Small changes in RR have large effect on money supply.
Which regulatory agency charters national banks?
Comptroller of the currency
A rising discount rate has no affect on the federal funds rate when:
The Reserves Demanded curve intersects the vertical portion of the reserves supplied curve
A rising discount rate will have what affect on the federal funds rate when the reserves demand curve intersects the horizontal part of the reserves supply curve?
Federal funds rate will rise.
Increasing the market interest rate causes what to happen to excess reserves and discount borrowing?
Excess reserves will decrease
Discount borrowing will increase
What is the main source of growth in the money supply?
The money multiplier
Open market operations are the most important monetary policy tools because they directly affect
The money multiplier
John Taylor says that the fed should do what when inflation rises above the fed's goal?
Raise the federal funds rate
John Taylor says that the fed should do what when the real GDP rises above the feds goal?
Raise the federal funds rate
Since the 1990's, the fed's monetary policy is based on:
Setting a target for the federal funds rate
The Fed is mostly independent, but it must still be wary of:
Being limited by congress through legislation.
An independent fed:
Is less likely to produce higher inflation and less likely to produce a political business cycle.
When price levels rise,
the dollar depreciates
The theory of purchasing power parity can't fully explain foreign exchange rate due to this factor:
Housing and land aren't traded across borders
Purchasing Power Parity
Based on the law of one price.
Used to determine long run currency ratios between two countries.
What is the main source of fluctuation in the money supply?
The monetary base
An increase in expected deposit outflows can have what affect on the money multiplier?
It will cause it to decline.
Describe the central bank's game plan.
They use policy tools to adjust operating targets that directly impact its intermediate targets in a way that allows the central bank to achieve its goals
Moral hazard can be reduced by:
regular bank examinations
Adverse selection is indirectly reduced by:
regular bank examinations
Regulatory forbearance does what to capital requirements?
Raises them
Discount loans have what type of relationship with the discount rate?
Negative
discount loans have what type of relationship with the market interest rate?
a positive one!
The federal reserve banks do all of the following
Make discount loans to banks in their district
Clear checks
Issue and withdraw currency
Are owned by the commercial banks in their district
An increase in the monetary base that goes into what is not multiplied in the money supply?
Currency
An increase that goes into what results in multiple expansion of the money supply?
deposits
Capital requirements
Helps keep people more careful in the way they manage their business.